WAREHOUSE MARKET REPORT RESEARCH. Moscow HIGHLIGHTS. The online trading segment formed the bulk of the demand structure at year-end 2017.

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1 201 WAREHOUSE MARKET REPORT HIGHLIGHTS The 5-year low volume of industrial space was delivered to the warehouse market of the region in 201. The vacancy rate fell to.% by the end of 201, which was 1.5 p. p. lower against 2016 figure. The online trading segment formed the bulk of the demand structure at year-end 201. The asking rental rate for quality Class A warehouse properties was equal to 3,00 rub./sq m/year (triple net) by the end of 201.

2 WAREHOUSE MARKET REPORT. MOSCOW Warehouse Market Report Vladislav Ryabov Regional director, Industrial, Warehouses and Land, Knight Frank, Russia and CIS The past year happened to be eventful in terms of transactions, a bit ahead of the year 2016, but all the other indicators of the market turned out to be less positive, demonstrating a continued decline in rental rates and a record low delivery volume. We expect that vacant premises will be occupied further and the rental rates will stabilize and possibly grow in H We do not expect new developers to approach the market, retailers and distributors will continue to prevail in the demand structure. Key indicators Total quality supply volume, thousand sq m 13,359 12,9 New delivery in 201, thousand sq m Transaction volume in 201, thousand sq m 1,196 1,099 5 Vacancy rate, %. 9.3 Asking Class A rental rates, rub./sq m/year* 3,00 4,000 Asking selling price, rub./sq m** 30,000 35,000 32,000 3,000 * Triple net hereinafter, asking rental rates exclude VAT, Operational Expenses and utility bills. ** Hereinafter, the selling price for the standard Class A dry warehouse of more than,000 sq m, excl. VAT. Borisovskiy terminal,, Simferopolskoe hw., km from MKAD 2

3 201 Supply 50,000 sq m were delivered to the warehouse real estate market of region in % lower than the same indicator in 2016 and the lowest delivery volume for the last 5 years. The total supply volume reached 13.4 million sq m. The largest volume of warehouse space was completed in the northern part of the region 212,400 sq m or 3.3% of the total delivery volume, followed by the southern direction with 1,400 sq m or 31.3% of the total delivery volume. Over 32,000 sq m or 5.6% of the total volume of warehouses completed in 201 were built speculatively; 26.6% or 151,00 sq m were built for end users; and the remaining 90,000 sq m or 15.% were constructed in a built-to-suit for lease and for sale format. Some of the largest speculative projects put into operation in 201 were units 2.4 and 4.4 with a total area of about 69,000 sq m in Orientir Sever-2 logopark; units 1, 2, 3, 4 in Vnukovo 2 logopark with a total area of about 50,000 sq m; units C1, C2, C3 in Dmitrov Logistics Park with a total area of about 45,000 sq m; phase 1 of Borisovskiy terminal with an area of about 33,000 sq m. Elena Bushmina, managing director of Ghelamco Russia KF: Is there a demand for completed speculatively warehouses in current market conditions? E. B.: Development is a cyclic process. It takes an average of up to 1.5 years from the project creation of a warehouse building to the receipt of commissioning permit. In this regard, if the demand in the market increases, a large volume of new space appears immediately, as a rule. Thus, the warehouse market of region started 201 with rather large volume of vacant space in terms of the balance of supply and demand. There were lots of large warehouse units move-in ready in the north of region during the construction of building C in the Dmitrov Logistics Park. Now, by the time of obtaining a certificate of ownership for the completed building, the vacancy in the north of region has decreased significantly, so our premises are in demand, and today we have an opportunity to focus not only on the volume of leased space, but also on the quality of potential tenants. KF: Which companies are applying for lease in building C of Dmitrov Logistics Park? E. B.: Many companies with expiry of their leases in 201 are seriously considering the option of moving to a better and more modern warehouse. As to the current profile of potential tenants of the Dmitrov Logistics Park, the main demand is registered from manufacturing companies (both Russian and foreign), which plan to locate their distribution centres in our project. Distribution of total quality supply volume in Russia, 201 Dynamics of growth of quality warehouse space, the volume of lease and purchase transactions and the vacancy rate in the region thousand sq m 1,00 % 12 2% 1,600 1,400 1,200 14% 5% 1, region St. Petersburg and the Leningrad Region Other regions F New delivery volume Transactions volume Vacancy rate 2 0 3

4 WAREHOUSE MARKET REPORT. MOSCOW About 1% of the total delivery volume of warehouse space of 201 was located at a distance of up to 15 km from the Ring Road, about 1% or 405,000 sq m of warehouse space at a distance of 15 to 45 km from the Ring Road, the remaining 12% were located at a distance of more than 45 km from the Ring Road. Kalin Anton, director of industrial property department of PNK Group We pointed out that some facilities sold speculatively in 201 were partially occupied by tenants already at the construction stage. This indicated that the volume of large vacant units meets all potential tenants technical requirements was shrinking. The largest BTS facility put into operation in 201 was BMW distribution centre with a total area of about 35,000 sq m, built on the territory of PNK Park Bekasovo. The vacancy rate of 201 dropped by 1.5 p. p. reaching.%, which was equivalent to 1 million sq m in absolute terms. Such a decrease was caused by the large number of transactions concluded in completed vacant facilities, thus inspiring the largest developers to announce the launch of new projects in region. For example, Orientir company planned to begin construction of a warehouse complex on Novorizhskoe highway with a total area of about 400,000 sq m in 201, and in 201 PNK Group introduced to the market of the region 5 new projects of universal buildings that can be used both for storage and for production. KF: What is the key difference of modern Class A warehouses from analogs of a decade ago? K. A.: The Russian market of industrial real estate is becoming more like the European one. This is evidenced not only by improved quality of industrial facilities, but also by the increasingly strict observance of international fire safety standards and property insurance standards, for example, such as FM Global. And if even - years ago in Russia there was a demand from international brands for compliance with such standards, but developers did not have any supply. Today, the leading players of the Russian market take into account the most stringent requirements of international insurance systems. KF: What type of transactions do you think will be more in demand in 201: lease in completed speculatively buildings or construction of own warehouse in BTS format? K. A.: We see that built-to-suit format is actively developing: large industrial and logistics companies, as well as retailers, increasingly prefer it. But now the customer is not ready to wait for his builtto-suit project more than one construction season, which is logical, because the construction time is reduced, while the quality is constantly growing due to the introduction of new technologies. But we also understand that there will always be many companies demanding the project to be built already and to be universal with the possibility of using both for storage and for production. And knowing these market needs, PNK Group is building exactly such industrial buildings. Due to the high rate of construction of industrial facilities on a turn-key basis, PNK Group always has vacant space and high readiness condition of facilities. Distribution of new delivery by type in the region, ,% 26,6% 5,6% Speculative For end use Built-to-suit PNK Park Valishevo, region, Simferopolskoe hw., 32 km from MKAD 4

5 201 The largest warehouse complexes delivered in 201 Klin Logistic warehouse complex, phase 1 56,000 sq m Klin Dmitrov Sergiev Posad Orientir Sever-2 logopark (bld. 2.4) 25,290 sq m (bld. 4.4) 43,4 sq m M- Sheremetyevo Istra M- PNK Park Severnoe Sheremetyevo, bld. 5 1,3 sq m Dmitrov Logistics Park (bld. С1) 19,35 sq m (bld. С2) 14,455 sq m (bld. С3) 11,140 sq m Solnechnogorsk Mytischi Korolev Technopark Uspensk, phase 2 42,000 sq m M- 9 M- Atlant Park, bld. G 21,000 sq m Zvenigorod Odintsovo Lyubertsy Vnukovo Moskovskiy M-3 M-1 M Vnukovo 2 logopark, bld. 1, 2, 3, 4 49,000 sq m Podolsk -5 Borisovsky terminal, phase 1 33,000 sq m Domodedovo Naro-Fomisk Bronnitsy M-2 M-4 PNK Park Bekasovo, DC BMW 34,345 sq m Zhukovsky Ramenskoe Chekhov Distribution of total quality supply by А the directions in the region, 201 Obninsk NORTH NORTH-EAST 19.% 5.5% NORTH 5.2% 5.2% EAST MKA D SOUTH-EAST 15.3% SOUTH-.%.4% SOUTH 32.9% Vnukovo 2 logopark New, between Kievskoe and Borovskoe hw., 20 km from MKAD 5

6 WAREHOUSE MARKET REPORT. MOSCOW Demand As a result of 201, the total volume of lease and purchase transactions on quality warehouse space in the region got to 1,196,000 sq m, which was slightly higher (by %) over the same period in Despite the increase in the share of BTS transactions in 201, the main volume of transactions (about.6% of the total volume) was concluded in comleted buildings. The largest volume of lease and purchase transactions in warehouses of the region (36.4% of the total) in 201 was concluded in the southern direction. Gleb Belavin, deputy general director on tenant relations in MLP Property Management Distribution of transactions by tenant/ buyer in the region, 201 Distribution of transactions in the region by types % 16.2% 1.2% 4.1% 26.2% 19.9% Online-retail Distribution Retail Transport and logistics Manufacturing Other 6.4% Distribution of transactions in the region by directions, 201 NORTH- 0% 9.6% NORTH 24.3% 3.4% SOUTH- 5.0%.2% MKAD SOUTH NORTH-EAST 36.4% 4.5% EAST 11.3% SOUTH-EAST.0% 1.9% KF: What are the current requirements of potential tenants for completed warehouses? Have the tenant preferences changed? G. B.: We did not see any fundamental changes in the requirements of tenants to warehouses in 201. As before, most companies were searching for a quality warehouse in a small distance from the Ring Road and with a professional management company. But a more thorough approach to choosing a partner was what we actually observed throughout the year. 1.4% 1.5% 3.0% % 9.%.3% 2015 Lease Sale BTS for lease BTS for sale 14.1%.0% KF: Has something changed in the behavior and preferences of developers in connection with the crisis? G. B.: If the quality of Class A warehouses remains quiet equal, the issue of professionalism and promptness of decision making by the management company becomes important. We think this is due to the different behavior of developers during previous crises. They witnessed personally that cooperation with a large management company was an indisputable significant advantage, as it was ready and able to find adequate solutions quickly on any issue to maintain a long-term partnership. Not every company can afford it, and not every company keeps the promises given earlier. Zakhar Valkov, executive director of Radius Group KF: Which companies formed the demand for quality warehouse space in 201? Z. V.: 201, unlike in 2016, was more dynamic in terms of the number of transactions indicators of activity in the market. That year, we saw an increase in demand from companies from different segments and industries across the market of quality Class A warehouses. They were both major players and medium-sized companies that took advantage of market conditions to upgrade their warehouse infrastructure. In addition, the activation of e-commerce companies was pointed out, expressed in large lease and purchase transactions. KF: How the year 201 was for South Gate industrial park? Z. V.: 201 was successful for South Gate industrial park, the team of Radius Group entered into long-term lease agreements for more than 0,000 sq m with such companies as Polaris, Leroy Merlin, Geyser, FM Logistic, L'Argo, and others. 6

7 201 The largest transactions in ,492 м2 Dmitrov Klin Sergiev Posad 0 Solnechnogorsk 12,46 м2 45,056 м2 managing director of Orientir group of companies,26 м2-1 M Andrey Postnikov, A. P.: 201 was the year of setting records for Orientir group of companies by the volume of concluded lease and purchase transactions in the region. The total transaction volume completed by Orientir Group of companiesobninsk in 201 amounted to 150,000 sq m, which, according to our estimates, was more than 60% of the total volume of transactions in 201 in the historically most demanded northern direction of the region. Such a high volume of transactions concluded in 201 allowed Orientir to take a leading position among the largest warehouse developers of the region. Orientir group of companies also concluded the largest investment transaction on the warehouse real estate market in 201 by signing a sales and purchase agreement for 195,000 sq m of space already leased on a long-term basis to such companies as OBI, O'KEY, Miratorg, R-Pharm and others. Mytischi Korolev M- 9,000 м2 M- Zvenigorod Vnukovo Moskovskiy 20,550 м2 20,614 м2 M -5 M-3 Lyubertsy 23,000 м2 Odintsovo 1,61 м2 Zhukovsky Ramenskoe ЛН Дистрибьюция 13,600 м2 Podolsk Naro-Fomisk 146,000 м Русинхим 11,000 м2 Domodedovo Bronnitsy M-4 KF: What is your estimate of the demand for quality warehouse real estate in the north of region in 201? Istra 26,502 м2 Sheremetyevo 2 12, 90 м2 14,000 м2 M-2 A. P.: The main feature of Severny distribution centre for Pyaterochka company was a period of 4.5 months from the date of signing the contract to the start of operations. The technical task of the customer included all the latest best practice of X5 Retail Group on warehouse buildings: from special requirements to formwork of high-precision heated floors to the system of dispatching and monitoring of all systems of the building directing M-1 them to a single centre and with access to information for managing organizations and services of the building. 15,533 м2 KF: What requirements did X5 Retail Group specify for the future distribution centre? M- 15,000 м2 6,19 м2 52,000 м2 Chekhov About 22,000 sq m or 24.3% of the total volume of transactions was completed in the north of the region. Interestingly, these directions historically formed the highest demand. The leading position (about 26% of the total volume of transactions) in the structure of demand in 201 was occupied by the segment of online-retail. The largest transactions of this segment were: the signing of an agreement between the onlineretailer Wildberries and A Plus Development company for the construction of a distribution centre with a total area of about 146,000 sq m; the signing of the sales agree- ment for the construction of distribution centre in a built-to-suit format for Utkonos company with an area of about 69,000 sq m in Orientir Sever-3 logopark. The second place in the demand structure of 201 was the segment of distributors with a share of about 20%. One of the largest transactions in this segment was the lease of about 1,600 sq m in Bykovo warehouse complex by Pharmcomplect pharmaceutical distributor. The largest transaction of the retail segment in 201 was the signing by the grocery retailer X5 Retail Group of a lease agreement for 45,000 sq m in Orientir Sever-2 logopark.

8 WAREHOUSE MARKET REPORT. MOSCOW Commercial terms Asking rental rates and demand volume by directions of region As a result of 201, the average rental rate for quality Class A warehouse space shrank.5% over 2016 and equalled to 3,00 rub./sq m/year. The asking rents varied depending on the location of the facility, the volume of leased space and other terms of the lease. The highest rates were recorded in the western, north-western and southern directions, the lowest in the eastern and south-eastern directions of the region. In 201, the selling price of a built-to-suit project from,000 sq m was in the range of 30,000 35,000 rub./sq m, excluding VAT. It should be noted that the construction cost of a built-to-suit warehouse complex for sale with an area of less than,000 sq m was 35,000 40,000 rub./sq m, excluding VAT. NORTH- NORTH 3,00 SOUTH- 3,00 3,00 3,600 MKAD 3,00 NORTH-EAST 3,600 SOUTH 3,200 3,200 EAST SOUTH-EAST Vacancy space 3,00 Asking rental rates, rub./sq m/year 0 3% 3 % % > % Dynamics of average asking Class A rental rates for warehouses in the region, rub./sq m/year 4,00 4,400 4,500 4,300 3,550 3,900 4,000 3,00 3, F Key indicators of the warehouse market of the region Index Quality supply volume at the end of the period, thousand sq m 9,603 11,240 11,95 12,9 13,359 Delivery, thousand sq m 63 1, Transaction volume, thousand sq m 1, ,231 1,099 1,196 Vacancy rate, % 1.9% 9.2% 9.4% 9.3%.% Average asking rental rate for Class A warehouse complexes, rub./sq m/year 4,00* 4,500 4,300 4,000 3,00

9 201 Forecast According to forecasts of Knight Frank analysts, the new construction volume of 201 will exceed the indicator of 201 rising to 00, ,000 sq m. Most of the facilities declared for commissioning in 201 will be completed in built-to-suit format or with the involvement of the general contractor on their own land plots. Therefore, the share of speculative warehouses will not exceed 50% of the total volume of new space in 201. In 201, the light industrial format began to actively spread at the warehouse real estate market of the region. This format implied the division into small units and was mostly in demand within the limits of the city or in the immediate vicinity of the Ring Road. However, some developers started to implement smallsize warehouses far from the Ring Road. Delivery of some of these projects scheduled for 201. Despite the fact that the bulk of the demand structure was formed by the online-retail segment by the end of 201, we believe that the retail segment will be in charge of the bulk of transactions in 201, leasing space in completed warehouses, and completing transaction on construction of their own facilities. Provided that the demand for completed units remains stable, the vacancy rate will continue to decline gradually and will be fixed at 6-6.5% by the end of 201. In connection with the entry into the market of a large number of facilities with asking rental rates below the market average in the first half of 201, we assume that the asking rental rate will go down to 3,600 rub./sq m/year. Alexander Nikishov, commercial director of Stroitelny Al yans holding KF: In your opinion, will the format of light industrial warehouses be much-indemand at a distance of km from the Ring Road? A. N.: First of all, the format of light industrial is not just the division into small units. These are professional production and storage facilities, radically different from Class A warehouses. The demand for this format in the immediate vicinity of the Ring Road can be argued. The European experience is, indeed, the concentration of such facilities close to large megacities, but the Russian experience is different. In the region there are cities (for example, Podolsk, Domodedovo, Chekhov, Elektrostal, etc.), which are located km from, but they will be very interesting to light industrial customers, because they have historically formed infrastructure favourable for creation and development of business. KF: Do you plan to put into operation warehouses of small format in 201? A. N.: There have been multi-parks in Europe for a long time, where all formats of industrial real estate perfectly coexist with each other, but there is not a single real multipark in Russia. Stroitelny Al yans holding is developing it already, it will be ready in 201 in the south of the region, where there will be together light industrial, industrial, logistics, and a pharmaceutical cluster. This will be the first and only multi-park in the Russian Federation at the moment. The largest properties planned for delivery in 201 in the region Property Developer Area, sq m Wildberries distribution centre A Plus Development 145,000 Auchan distribution centre Radius Group 13,000 Warehouse complex A Plus Development 90,000 Utkonos distribution centre Orientir 1,000 Major warehouse terminal, phase 2 Standart Proekt LLC 5,300 Operator kommercheskoy nedvizhimosti distribution centre PNK Group 52,000 Dmitrov Logistics Park, block D Ghelamco 50,000 Borisovsky terminal, phase 2 Promtechalians 35,000 Svitino warehouse complex VS Nedvizhimost 2,000 Knight Frank LLP 201 This overview is published for general information only. Although high standards have been used in the preparation of the information, analysis, view and projections presented in this report, no legal responsibility can be accepted by Knight Frank Research or Knight Frank for any loss or damage resultant from the contents of this document. As a general report, this material does not necessarily represent the view of Knight Frank in relation to particular properties or projects. Reproduction of this report in whole or in part is allowed with proper reference to Knight Frank. Olga Shirokova Director, Russia & CIS olga.shirokova@ru.knightfrank.com INDUSTRIAL Vladislav Ryabov Director, Russia & CIS vlad.ryabov@ru.knightfrank.com + (495)